Betting on crypto may soon be regulated as traditional gambling in the UK.
The United Kingdom’s House of Commons Treasury Committee, a cross-party Committee of MPs formed to examine the expenditure, administration, and policies of the British Treasury, has recommended the government regulate crypto trading as gambling, according to a new report.
The proposal would mean that the Gambling Commission would oversee crypto activities in the UK using the Gambling Act 2005 as its guide.
It would provide “advice and guidance to individuals and businesses” about preventing what it calls “problem gambling” with crypto while applying safeguards like anti-money laundering (AML) and counter-terrorist financing (CTF) to the industry.
Crypto trades would also be taxed as gambling, possibly “with levies to support the debt advice and addiction services for which it will fuel demand.”
Unsurprisingly, the Committee was thin on praise for cryptocurrencies, saying only that the “most convincing use case” for crypto is to “improve the efficiency and reduce the cost of making [international] payments.”
The report recommends the government takes “a balanced approach” to supporting the industry’s development, warning that “unbacked cryptoassets” with “no intrinsic value,” like Bitcoin and Ethereum, are “particular concerns” requiring “a different approach.”
The committee then flagged crypto’s inherent price volatility as a catalyst for “substantial gains or losses, while serving no useful social purpose.”
This prompts the committee to conclude that crypto “more closely [resembles] gambling than a financial service, an impression reinforced by the evidence we have received of consumer behavior.”
The report also cautions that if the UK government regulates retail trading and investment activity as a financial service, per the current approach, this would “create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not."
The committee therefore strongly recommends the government regulates crypto trading and investment as gambling “consistent with its stated principle of ‘same risk, same regulatory outcome.’”
Initial industry reactions to the report are negative.
Co-founder and COO of crypto trading platform Phinom Digital Ivan Ivanchenko said “treating cryptocurrency trading as gambling would be a backward step for the UK's digital currency aspirations and another demonstration that the country is fast becoming a sea of red tape.”
In a statement shared with the press, the board advisor of UK's crypto trade association CryptoUK Ian Taylor highlighted that the Treasury’s report conflicts with the Treasury’s previous proposal to bring crypto in line with existing financial regulations.
“CryptoUK strongly disagrees with the Treasury Committee’s conclusion, and we are both concerned and disappointed by these claims which are unhelpful, false, fundamentally flawed, and unsubstantiated," said Taylor. "The statement fails to reflect the true nature, purpose, and potential of the crypto industry.”
UK and Crypto
The controversial new report already has many in the industry up in arms as the British government already signaled that it would welcome crypto, planning to bring the industry within the remit of existing financial legislation.
Last April, the government announced plans to make the UK a “global crypto asset technology hub.”
At the time, then Chancellor of the Exchequer Rishi Sunak said in a prepared statement: “It’s my ambition to make the UK a global hub for crypto asset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate, and scale up in this country.”
Sunak’s primary proposal toward crypto regulation involved regulating stablecoins as "a recognized form of payment" under the existing regulatory regime.
In a recent consultation paper, the government announced a plan to bring crypto firms in line with the existing Financial Services and Markets Act 2000, which governs traditional trading venues.
The British government had also announced early last year that it was working with the Royal Mint—the official manufacturer of Britain’s coins—to produce an NFT that was initially going to be issued by summer, although according to the committee’s report, that venture is now officially dead in the water.
About the canceled NFT, the British Chancellor of the Exchequer (Finance Minister) Jeremy Hunt told the Treasury Committee: “We always want to be at the cutting edge of new technology in the UK, but the world has changed significantly since then and we are not convinced that the demand will be there in the same way.”